[Federal Register Volume 67, Number 144 (Friday, July 26, 2002)]
[Notices]
[Pages 48959-48960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18972]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46235; File No. SR-Amex-2001-55]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Amending Exchange Rule 175 To 
Limit Specialists' Affiliations

July 19, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 30, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Amex Rule 175 to prohibit Amex 
specialists from maintaining affiliations with persons that engage 
directly or indirectly in primary market making activities in the same 
security on another national securities exchange or facility of a 
national securities association.
    The text of the proposed rule change appears below. New text is in 
italics.

Rule 175. Specialist Prohibitions

    Paragraphs (a) through (c)--No change.
    (d) No specialist or his member organization or any member, limited 
partner, officer, or approved person thereof shall act as a specialist 
or function in any capacity involving primary market making 
responsibilities on another national securities exchange or facility of 
a national securities association with respect to a security as to 
which the specialist is registered as such.
    Guidelines for Specialists' Specialty Stock Option Transactions 
Pursuant to Rule 175. No change.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    The Exchange states that in recent years member organizations that 
serve a market making function on the floor of the Exchange as 
specialists have grown in size and have become active on other United 
States markets. Similarly, market makers whose beginnings were in other 
markets have grown in size and have become active on the Exchange as 
market makers or specialists. The Exchange believes that while, 
generally, this has been a positive development for investors in that 
larger pools of capital are available for trading on the Exchange and 
other markets, questions have arisen as to whether a specialist on the 
Amex could act as the specialist or perform primary market making 
responsibilities in its Amex specialty securities on another market.
    The Exchange believes that an Amex specialist or its affiliates 
should not act as a specialist or perform primary market making 
responsibilities on another market with respect to its Amex specialty 
securities.\3\ The Exchange also believes that such affiliations raise 
competitive and conflict of interest concerns that cannot be 
ameliorated through internal controls, such as the Amex's Rule 193 
information fire-wall procedures. Thus, having the same firm, or 
affiliates thereof, act as a primary market maker in the same security 
in two or more markets may tend to limit competition across markets. 
The Exchange asserts that a primary market maker may not be as vigorous 
in competing against a primary market maker on another marketplace that 
is part of the same firm or an affiliated entity. While the possible 
presence of other, non-affiliated market makers on one or both 
exchanges may help mitigate this competitive concern, the Exchange 
believes that the consistent presence of such market makers would vary 
from one security or market to another and is not assured.
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    \3\ According to the Exchange, the term ``specialty security'' 
includes Exchange-Traded Funds, options, equities, and Security 
Futures Products.
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    The Exchange further believes that fulfilling primary market making 
responsibilities on more than one market poses conflict of interest 
issues for a firm. For example, according to the Exchange, it is 
perfectly appropriate in the context of Amex Rule 193 for the 
management of a member firm that operates an Amex specialist as well as 
other broker-dealer activities to allocate resources and assign 
personnel within the firm. The Exchange believes that if such a firm 
were to have an Amex specialist and a primary market maker in the same 
security on another market, these permissible resource allocation 
decisions could impact the competitive capabilities of the Amex 
specialist or the market maker on the other exchange to the possible 
detriment of the respective market makers and investors.
    Therefore, the Exchange believes that codifying the Exchange's 
existing policy of prohibiting Amex specialists from being affiliated 
with a person that performs primary market making responsibilities in 
another United States market would maintain competition in the trading 
of securities because no

[[Page 48960]]

individual specialist unit would be permitted to trade the same 
security as a primary market maker on more than one market.
(2) Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\4\ in general and furthers the objectives 
of section 6(b)(5) of the Act,\5\ in particular in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest, 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers and dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change would impose no 
burden on competition and, in fact, will tend to strengthen and 
maintain competition. The Exchange further believes that competition 
among markets (and, as the result, the interests of investors) would be 
adversely impacted if a firm were permitted to act as the primary 
market maker in more than one market in the same security. The Exchange 
believes also that it is virtually impossible for a firm that acts as a 
primary market maker in the same security in more than one market to 
compete with itself, and that resource allocation decisions by the firm 
would tend to strengthen the capabilities of one of the market making 
operations to the detriment of the other(s). The prospect of the same 
or related firms posting inconsistent quotes and providing varying 
executions in different markets also may raise other concerns. As a 
result, the Exchange believes that it is appropriate and in the 
interests of promoting competition among markets and protecting the 
interests of investors to prohibit Amex specialists and their 
affiliates from acting in a primary market making capacity in the same 
security on another national securities exchange or facility of a 
national securities association.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve such proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filings will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-Amex-2001-55 and 
should be submitted by August 16, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-18972 Filed 7-25-02; 8:45 am]
BILLING CODE 8010-01-P